Soros, Bessent and the Pound
By Jeff Kelly on March 14, 2025
In 1992 a team at Soros Fund Management broke the Bank of England. The leader of the team in London focused on the trade, shorting the British Pound, was Scott Bessent, currently the Treasury Secretary in the Trump administration.
The trade idea originated with the fund managers George Soros and his 2nd in command Stanley Druckenmiller. Together they shorted the British Pound and forced the Bank of England to spend all their reserves supporting the pound. Once the reserves were depleted, the pound went into free fall. The fund covered their trade and made a fortune.
Imagine, two conservatives, Bessent and Druckenmiller and a liberal, Soros managed to work together to strategize, plan and execute one of the greatest trades in the history of financial markets. The liberal, Soros backed Bessent when he left to start his own fund with 2 billion dollars. Crazy? Liberals and conservatives with a common goal getting it done.
People of different political persuasions can work together and achieve a goal. Imagine if the Congress and executive branch were focused on a goal to serve the American people instead of their narrow self-interests. Oh, the places we could go!
Scott Bessent is the most talented Secretary of the Treasury in a generation. If he’s allowed to do his job, he could make great things happen. He has said in several interviews we are in for a period of some pain. He’s not kidding and he’s not lying. We are in for a more difficult period in the markets and the economy. Believe what he says. A 10% correction of the most extreme valuations in history isn’t likely to ease concerns. After a rally, expect more difficulty.
It’s no secret equity markets struggled in the month of March. As of Thursdays close the S&P 500 was very close to correcting 10% from the highs of a few weeks ago. The Nasdaq was down over 12%. Its easy to see why. The economy shows signs of slowing, credit spreads are widening, and we have ever changing messages about tariffs and policy.
The good news is many market bottoms occur in March. The selling has been intense and unrelenting. We don’t think it’s “the bottom” but it may be a bottom. A rally of 5-10% here may unfold to alleviate the oversold condition.
Could it be “the bottom”, of course. Anything can happen. We still have a couple weeks of March to get through. We also have many negative factors pressing on the economy. Cutting spending is a reduction in economic activity in the near term even if it is a positive later. The reductions at the Federal level have a multiplier effect on the real economy.
These reductions will sting, likely in the 2nd quarter just as tariffs start to bite. There is a Fed meeting next week. If they were to cut rates, it would be unexpected. While rate cuts are positive, when they are unexpected it raises the question of what they know and why they are cutting rates earlier than communicated.
There is also a big calendar of data being released next week. Hopefully the week is calmer and less eventful than the past 5 days have been.
CHARTS FROM THE WEEK PAST
The QQQ (Nasdaq 100 ETF) has bottomed after bouts of heavy selling like we’ve experienced over the past few weeks.
It hasn’t turned yet but maybe soon.
Equity positioning has declined but is far from depressed levels.
The thrill is gone, and the euphoria is over.
Small business survey rolls over hard with constant chaos from the administration.
Expansion plans for small business are declining.
It’s hard to plan with the rules changing by the hour.
Credit spreads have started widening.
This is a warning sign for markets if it continues.
Inflation moving towards Fed’s 2% target.
As we “detox” the monthly and quarterly debt maturities this year are huge.
They are trying to get rates lower to help with the refinance.
Chinese tech stocks are trading better than US tech equities.
Breadth was poor ahead of the decline this month.
The Bloomberg uncertainty index is at an extreme.
Food costs look to be hooking higher in the latest CPI report.
“Intraday volatility was exceptionally high, ranking in the 96%ile over a 10-year trailing period, a level rarely seen outside of negative gamma regimes”
Short term bonds are in a bull market.
Mortgage applications move higher with rates declining.
Market performance has changed since the first Trump administration.
The supplies of several minerals are in tight supply due to rising tech demands.
Total employment is rolling over hard.
Volatility around different kinds of higher yielding credit.
Private credit stands out with lower volatility and higher returns. But don’t be misled. Private credit is not marked to market as other assets in this graph must be.
Largest 4-week outflows from Crypto funds are the largest on record.
To be fair it’s a very short record.
Retail flows into the markets have been extreme.
Lots of folks expecting volatility to continue rising.
Stagflation is the winner in news story counts from Google.
Totally useless information but fun to know anyway.
Manhattan Apartment rents hit new highs.
Seems like a pattern to me.
In America? Really?
Tariffs are bad policy.
Unfortunately, we seem hell bent on finding this out the hard way.
WEEKEND HOMEWORK
A very good podcast with a well-reasoned outlook.
Erik Townsend and Patrick Ceresna welcome Tian Yang to MacroVoices. Erik and Tian discuss:
- Macro Environment & Leading Indicators
- Trump Administration Policy Impact
- Knowns and Unknowns in The Economy
- Global Equities Outlook
MacroVoices #471 Tian Yang: Tariffs Will Continue Until Morale Improves
The weekend beckons with the promise of a great week coming up. March madness starts and, in a few days, spring. Spring brings us rebirth and potential. Blooms and blossoms, Easter dresses and baskets of chocolate eggs. So much to be thankful for. So much to look forward to. Get out and get after it! Don’t wait, tomorrow may be to late. Get those steps in. Pump that iron. And phone a friend, hug a loved one. Live life to the highest possible level.
